Insider Trading Taints Private Equity (Again)

When the SEC first brought charges in the Galleon case, it promised that many more insider trading suits would be forthcoming. We wondered how many would include private equity firm employees, given that the 2006-2008 boom in take-private deals often included spikes in trading volumes just before the formal acquisition announcements.

We got our first taste early last month, when the SEC charged former Friedman Fleischer & Lowe CFO Chen Tang.

Today we got some more, with SEC allegations that former TPG Capital associate Vinayak Gowrish schemed to illegally profit on deals for Sabre Holdings Corp., TXU Corp. and Alliance Data Systems Corp.

Gowrish’s alleged partner on the scam was Adnan Zaman, a former investment banker with Lazard Frères & Co. The way it worked was that Gowrish would get inside information about a pending deal, and then pass it on to Zaman who, in turn, would pass it onto a pair of options traders named Pascal Vaghar and Sameer Khoury (via yellow sticky notes, no less).

Each of the trades was deliberately small, so as not to tip off authorities. The total illicit profits were around $500,00. You can read the SEC’s full complaint below:

Comp 21339